Government Announces Comprehensive Reform of Bankruptcy Law
On Wednesday the Federal Government introduced the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018 into the House of Representatives, seeking to amend the existing Bankruptcy Act 1966.
The bill follows a shift in the Australian market that has seen an increase in debt agreements and subsequent decline in bankruptcies year-on-year since 2007, and has been described by Attorney-General Christian Porter as the ‘first comprehensive overhaul of Australia’s debt agreement system in a decade’.
According to the Bill's Explanatory Memorandum, the new measures serve to 'boost confidence in the professionalism of administrators, deter unscrupulous practices, enhance transparency between the administrator and stakeholders, and ensure that the debt agreement system is accessible and equitable', so that those involved should have reason to place trust in the system.
So what amendments is the Bill seeking to introduce?
Debt Agreement Assets Threshold increased to $222 000
The Bill proposes to double the current assets threshold amount and in effect, broaden the scope of debtors who are eligible to lodge a debt agreement proposal.
Under existing law, a debtor may not present a debt agreement proposal if the value of their property exceeds $111,675.20.
As such, the proposed amendments seek to reflect current Australian property prices, acknowledging that the existing asset threshold precludes a significant proportion of Australians from accessing the debt agreement system.
Payment to reflect debtor’s income
A debtor may not submit a debt agreement proposal if the total proposed payments exceed the debtor’s yearly after-tax income by a certain percentage. The Bill contains a legislative instrument which grants the Attorney-General power to determine this percentage, however is yet to stipulate an exact figure.
Maximum Three Year Period for Debt Agreements
The Bill provides that a debtor is unable to propose a debt agreement that would last longer than three years from the day the agreement is made.
Moreover, it specifies that where three years have passed and a debtor has not satisfied the obligations contained in the agreement, the agreement will continue until it terminates, ends or otherwise concludes, pursuant to Part IX of the Bankruptcy Act 1966.
Stricter Regulations for Debt Agreement Administrators
Debt agreement administrators will be required to obtain adequate and appropriate indemnity and fidelity insurance in order to have their applications for registration and renewal of registration approved by the Official Receiver.
In processing registration applications, the Inspector-General will be required to review applicants as soon as practicable and must produce a decision within 45 days of conducting an interview. The Bill also grants the Inspector-General power to deny registration where an individual is not a fit and proper person.
For a comprehensive list of the proposed amendments see Bankruptcy Amendments.
